Don't Touch the Refiners Until You Understand a Few Things About Their Future

The refinery stocks are in the news, here is a great ThomsonReuters article that will give you a good perspective on how to approach trading the refiners. Obviously they are going down hard, have they hit bottom?

"Inland U.S. oil refiners stung by renewable energy credits"

By Krishna N Das and Swetha Gopinath April 3 (Reuters) - Landlocked U.S. oil refiners short on capacity to blend ethanol are bracing for a spike in costs, unable to export their way out of a sudden rise in the price of renewable energy credits needed to comply with government requirements.

CVR Energy Inc and HollyFrontier Corp, inland refiners with limited capacity to blend biofuels into the pipeline, are suffering from a jolt to investor confidence while stocks of their coastal peers continue a two year upward march.

Along with some East Coast refiners like PBF Energy Inc , they are at the sharp end of the uneven distribution of pain resulting from a hundred-fold surge in the cost of ethanol credits.

Refiners are caught between the U.S. ethanol mandate, which requires ever-higher volumes of ethanol to be blended into the domestic gasoline pool, and the limited amount of the corn-based fuel that some cars can safely run.

To offset the difference, refiners must either export gasoline to markets not requiring the blend or buy up ethanol credits that can satisfy government requirements without forcing higher volumes of ethanol into gasoline.

The price of these credits, or Renewable Identification Numbers (RINs), has spiked to more than $1 in recent weeks from 1 cent in December due to concerns of a looming shortfall.

That price rise may prove a serious drag on the bottom line of CVR Energy, for example, whose refineries in Oklahoma and Kansas have neither easy access to foreign markets nor integrated systems to blend ethanol into gasoline themselves.

"If you are in the middle of the country with no access to waterborne markets, and don't own any blending component of the value chain, it could be a disadvantage," said John Williams, investment analyst at T. Rowe Price in Baltimore , Maryland.

The ethanol mandate was conceived during the administration of President George W. Bush, when domestic gasoline demand was projected to grow steadily, increasing the need for foreign oil.

Since then, however, the U.S. shale boom has seen domestic production boom, while gasoline demand has been in decline.

Refiners are therefore obliged to blend more ethanol into a smaller gasoline pool. Older cars face possible engine damage if fuel contains more than 10 percent ethanol, creating a "blend wall" that refiners are loath to exceed for fear of incurring liabilities.

The ethanol requirement is set to grow every year until 2022. Many oil companies have complained about the mandate, and warned that more costly RINs will drive up prices at the pump. "This failed federal program is already costing consumers and taxpayers dearly," said Tina Barbee, spokeswoman for Tesoro Corp, the largest independent refiner on the West Coast.

West Coast refiners are better placed to export than their East Coast peers, which typically refine imported oil. Tesoro's strong retail presence has also helped shield it from higher RIN costs, said Raymond James & Associates analyst Stacey Hudson. "(East Coast refiner) PBF, on the other hand, does not have a retail presence and that could be seen as a disadvantage for generating RINs," she said. "If you produce more fuel for domestic consumption than you blend, you will be short on RINs." PBF declined to comment.

Its shares have fallen 11 percent in the past month. Tesoro's stock has fallen less - 3 percent - but is still underperforming shares in companies with refineries on the Gulf Coast , which export more gasoline.

Natural Hedge

The Thomson Reuters U.S. Oil & Gas Refining and Marketing index, which includes shares of almost all U.S. refining companies, has risen 28 percent over the past two years as cheap shale crude has propped up margins.

Refiners in the U.S. heartland have seen the benefits of easy access to rising volumes of relatively cheap domestic crude. But CVR and HollyFrontier have started to buck this trend; both stocks are down 10 percent in the last month.

Macquarie Research cut its ratings last month on both companies. RIN pricing, it said, was a big enough issue to warrant longer-term concerns.

"The refiner stocks have performed exceptionally well for two years running, thus we recommend taking profits on those with the greatest RIN risks," Macquarie analysts said in a note.

Refiners with blending facilities to help offset RINs risk, or which can export more gasoline, are seen as better protected. Marathon Petroleum Corp's stock has risen 6 percent and Phillips 66 is up 9 percent in the last month.

"They have a natural hedge through that (blending), and they also have access to export markets through their Gulf Coast operations," said Williams, whose firm owns Phillips 66 shares.

Though the company has not explicitly linked its expansion to RINs, Phillips 66, the refining company spun out from ConocoPhillips, has said it will have the infrastructure needed to raise exports by about 40 percent within three years.

Material Costs

Leading independent refiner Valero Energy Corp -- also in the T. Rowe Price portfolio -- says it expects its RIN-related costs to jump to as much as $750 million this year from $250 million in 2012.

Unlike CVR and HollyFrontier, Valero has the option of raising exports from its Gulf Coast refineries. But the company is also a significant spot seller of unblended gasoline in the United States ; its stock is down 7 percent in the last month. Macquarie said the large volumes of unblended gasoline in the company's Gulf Coast system, which it estimated at 2.2 billion to 2.3 billion gallons in fiscal 2013-14, threatened to overshadow its exports.

Further inland, meanwhile, CVR Energy is limited in what it can export. The company, controlled by billionaire investor Carl Icahn, said in a regulatory filing last month that its RIN costs were likely to be "material".

"There's no way that the RINs cost will not get passed on," Chief Executive Jack Lipinski said on a post-earnings conference call. "Eventually somebody has to pay it." At $1 per gallon, RIN credits adds 10 cents per gallon to gasoline prices, which cost about $3.68 per gallon on an average for March, compared with $3.39 in January, according to the U.S. Energy

Ultimately, much is likely to depend on how successful those refiners short on RINs will be in passing on costs to consumers. Valero spokesman Bill Day said: "We expect to see prices of gasoline go up across the country." Bradley Olsen, analyst at investment bank Tudor Pickering & Co, said comparatively high gasoline prices on the East Coast were at least helping refiners there to balance their RIN costs.

"The U.S. market still needs close to 9 million barrels a day of gasoline. The short term solution is to export to avoid the RIN obligation but, ultimately, increased exports reduce the supply domestically," he said. "You are going to see prices rally."

Posted courtesy of ThomsonReuters


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Recent Action in Silver ETFs Is Bad News for Precious Metals Bears

From Author Jeff Clark, Senior Precious Metals Analyst.....

Two weeks ago we looked at the difference between gold ETF outflows vs. physical gold purchases, and showed that most sales were coming from the former while aggressive buying was coming from the latter.


This week we examined the same data for silver – and discovered a rather striking trend. Not only are silver ETFs seeing no net outflows, their holdings are increasing. Bearish investors who treat the two precious metals as being the same, interchangeable thing, and sell silver along with gold are at risk of missing the boat.

Here's how holdings in SLV, the world's largest silver ETF, compare to those of GLD…

The divergence between gold and silver funds is clearly evident. As of March 28, SLV holdings stand at 344,128,478 ounces, up 5% so far this year and just 7% below 2011's record high.

It's not just SLV. As a group, silver exchange-traded products (ETPs) have seen their holdings rise for four consecutive months.

Why the stark divergence between the two precious-metals funds?

As most readers know, silver has a dual nature, serving as both a precious metal and an industrial metal. As a precious metal, it's a store of value like gold – but since roughly half of its use is devoted to various industrial applications, its performance has a strong correlation to economic growth. And since most mainstream analysts are bullish on the global economy, the current surge in silver ETFs is likely a result of this optimism. After all, if you see economic recovery ahead, industrial demand for the metal will grow and the price would be expected to rise.

Further, these massive inflows are occurring at a time when the silver price is mostly flat, whereas the previous peak in holdings took place when the price was soaring (spring 2011). Here's a picture of SLV holdings since January 2012, along with the silver price.

What's interesting is that the increase in SLV holdings has not had a significant impact on silver's price – yet. Since the price usually receives a boost when industries start buying more of it, many of these "paper" buyers are likely adding silver in anticipation of economic recovery, the very reason others are selling gold.

Let's take a look at physical demand.

As with gold, buyers of physical silver tend to have a long-term investment horizon and buy mostly from a currency standpoint. With prices near the bottom of their 22-month range, many investors continue to see opportunity: January sales of American Eagle silver bullion coins spiked to an all-time record of 7.5 Moz, and February's demand was 3.4 Moz, up 126% from last February's sales of 1.5 Moz. Cumulative silver coin demand for the first two months of this year already hit 10.87 Moz, a full third of total coin sales in 2012.

You can see that silver is being sought by both paper and physical buyers.

Whether it's mainstream investors buying in anticipation of economic recovery or physical buyers loading up due to currency concerns, investors collectively see big potential for silver.

Investor Implications: Is Silver a No-Lose Proposition?

 

It's a simplistic conclusion but not necessarily inaccurate: silver rises if the economy improves and industrial demand grows – or it rises if the world's major currencies continue to be debased, regardless of whether the economy is on the mend. Two different reasons, the same investment solution.

What if we get both outcomes: a robust economy and high inflation? That, of course, would be music to the ears of silver owners... the demand from industry strains supply, while bullion owners refuse to sell. Prices would go ballistic.

Does this mean silver is a no-lose proposition? Of course not. No investment comes without risk. An outright depression would be destructive to industrial demand. Roughly two-thirds of silver is used in industry and jewelry, so Doug Casey's Greater Depression could severely impact the biggest portions of current demand. The same events would increase monetary demand for silver, but the two trends may not have equal weight on the price of silver at the same time. We thus wouldn't make silver our sole investment, but we see a lot of upside in the metal under current market conditions.

At the end of the day, we're more inclined to buy silver for the same reasons we buy gold. While a case can be made for an improving economy, there's an overwhelming one already built for government money-printing to result in a massive loss of purchasing power, and that argues for seeking the safe haven of precious metals – both of them.

Don't miss this opportunity: Prices are low right now, and that makes it time to buy.

It's an even better time to buy gold and silver producers – especially select junior mining companies. Right now, the sector is so badly beaten down that even the best-of-the-best outfits are selling at discounts of 50% or more, giving you a rare opportunity to get in at the bottom of what could be the next great investment bubble.

To help you more fully appreciate the magnitude of this opportunity – and to give you concrete investment strategies – some of the world's top natural-resource speculators and economic minds will appear in a special, online video event on April 8, titled Downturn Millionaires. They include: contrarian investment legend Doug Casey; Agora Inc. publisher Bill Bonner; Sprott US Holdings Chairman Rick Rule; Mauldin Economics Chairman John Mauldin; and Casey Research Chief Metals and Mining Investment Strategist Louis James.

The event is free and is a must-see for serious investors. Get more information and register today.


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The Chess Game of Capital Controls

From Jeff Clark, Senior Precious Metals Analyst

The best indicator of a chess player's form is his ability to sense the climax of the game.

–Boris Spassky, World Chess Champion, 1969-1972

You've likely heard that the German central bank announced it will begin withdrawing part of its massive gold holdings from the United States as well as all its holdings from France. By 2020, Bundesbank says it wants half its gold reserves stored in its own vault in Germany.


Why would it want to physically move the metal from New York? It's not as if US vaults are not secure, and since Germany already owns the gold, does it really matter where it sits?

You may recall that Hugo Chávez did the same thing in late 2011, repatriating much of his country's gold reserves from London. However, this isn't a third-world dictatorship; Germany is a major ally of the US. So what's going on?

Pawn to A3

On the surface, it may seem innocuous for Germany to move some pallets of gold closer to home. Some observers note that since Russia isn't likely to be invading Germany anytime soon – one of the original reasons Germany had for storing its gold outside the country – the move is only natural and no big deal. But Germany's gold stash represents roughly 10% of the world's gold reserves, and the cost of moving it is not trivial, so we see greater import in the move.

The Bundesbank said the purpose of the move was to "build trust and confidence domestically, and the ability to exchange gold for foreign currencies at gold-trading centers abroad within a short space of time." It's just satisfying the worries of the commoners, in the mainstream view, as well as giving themselves the ability to complete transactions faster. As evidence that it's nothing more than this, Bundesbank points out that half of Germany's gold will remain in New York and London (the US portion of reserves will only be reduced from 45% to 37%).

Sounds reasonable. But these economists remind me of the analysts who every year claim the price of gold will fall – they can't see the bigger implications and frequently miss the forest for the trees.

Check

What your friendly government economist doesn't reveal and the mainstream journalist doesn't report (or doesn't understand) is that in the event of a US bankruptcy, euro implosion, or similar financial catastrophe, access to gold would almost certainly be limited. If Germany were to actually need its gold, regardless of the reason, any request for transfer or sale would be… difficult. There would be, at the very least, delays. At worst such requests could be denied, depending on the circumstances at the time. That's not just bad – it defeats the purpose of owning gold.

But this still doesn't capture the greater significance of this action. First, it reinforces the growing recognition that gold is money. Physical bullion isn't just a commodity, a day-trading vehicle, or even an investment. It's a store of value, a physical hedge against monetary dislocations. In the ultimate extreme, it's something you can use to pay for goods or services when all other means fail. It is precisely those who don't recognize this historical fact who stand to lose the most in an adverse monetary event. (Hello, government economist.)
Second, here's the quote that reveals the ultimate, backstop reason for the move: Bundesbank stated it is a "pre-emptive" measure "in case of a currency crisis."

Germany's central bank thinks a currency crisis is really possible. That's a very sobering fact.
We agree, of course: history is very clear on this. No fiat currency has lasted forever. Eventually they all fail. Whether the dollar goes to zero or merely becomes a second-class currency in the global arena, the root cause for failure is universal and inevitable: continual and perpetual dilution of the currency.

Some level of currency crisis is inescapable at this point because absolutely nothing has changed with worldwide debt levels, deficit spending, and currency printing, except that they all continue to increase. While many economists and politicians claim these actions are necessary and are leading us to recovery, it's clear we have yet to experience the fallout from spending more than we have and printing the difference. There will be serious and painful consequences, sooner or later of an inflationary nature, and the average person's standard of living will be greatly reduced.

And now there are rumblings that the Netherlands and Azerbaijan may move their gold back home. If this trend gathers steam, we could easily see a "gold run" in the same manner history has seen bank runs. Add in high inflation or a major currency event and a very ugly vicious cycle could ignite.

Checkmate

If other countries follow Germany's path or the mistrust between central bankers grows, the next logical step would be to clamp down on gold exports. It would be the beginning of the kind of stringent capital controls Doug Casey and a few others have warned about for years. Think about it: is it really so far-fetched to think politicians wouldn't somehow restrict the movement of gold if their currencies and/or economies were failing?
Remember, India keeps tinkering with ideas like this already.

What this means for you and me is that moving gold outside your country – especially if you're a US citizen – could be banned.

Fuel would be added to the fire by blaming gold for the dollar's ongoing weakness. Don't think you need to store gold outside your country? The metal you attempt to buy, sell, or trade within your borders could be severely regulated, taxed, tracked, or even frozen in such a crisis environment. You'd have easier access to foreign-held bullion, depending on the country and the specific events.

None of this would take place in a vacuum. Transferring dollars internationally would certainly be tightly restricted as well. Moving almost any asset across borders could be declared illegal. Even your movement outside your country could come under increased scrutiny and restriction.

The hint that all this is about to take place would be when politicians publicly declare they would do no such a thing. You could quite literally have 24 hours to make a move. If your resources were not already in place, even the most nimble of us would have a very hard time making arrangements.

Once the door is closed, attempting to move restricted assets across international borders would come with serious penalties, almost certainly including jail time. In such a tense atmosphere, you could easily be labeled an enemy of the state just for trying to remove yourself from harm's way.

The message is clear: storing some gold outside your country of residence is critical at this point, and the window of time for doing so is getting smaller.

Don't just hope for the best; do something about it while you still can. The minor effort made now could pay major dividends in the future. Besides, you won't be any worse off for having some precious metals stored elsewhere.

If you're moved to take action, know that you're not alone. It's critical that you take these first steps now, while you still can. The best chess players in the world aren't that way because they can see the next move. They're champions because they can see the next 14 moves. You only have to see the next two moves to "win" this game. I suggest making those moves now before your government declares checkmate.

There's another "great game" when it comes to the precious metals market: the junior mining sector. The truth is, these stocks aren't for every investor – junior miners are more volatile than any other stock on Earth. However, for those who can stomach sudden price swings and are willing to bet against the crowd, right now junior explorers are offering the profit opportunity of a lifetime.

If you've ever wanted a realistic shot at making a fortune, you owe it to yourself to sign up for the upcoming Downturn Millionaires free online video event. It will feature famous speculators, including Doug Casey, Rick Rule, and Bill Bonner, who will detail how everyday investors can leverage junior miners to fantastic profits… just as they have done time and again over the years. Get the details and sign up now.


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Gold vs. S&P 500 – Where is the Value?

This past week we received the final 4th Quarter GDP number which came in at 0.39%. The total 4th Quarter growth was terrible, plain and simple. Based on the performance in the equity markets that we have seen thus far in the 1st Quarter of 2013 investors would expect strong GDP growth. However, the only thing spurring stock market growth is the constant humming of Ben Bernanke’s printing press.

The real economy and the stock market are no longer strongly correlated. Essentially, they are meaningless. How do you evaluate risk when Treasury linked interest rates are artificially being held down by the Federal Reserve? How do you evaluate earnings growth estimates when most government based statistics are manipulated or “smoothed” to perfection?

My final argument to anyone who is a true believer that the stock market is representative of the economy is a very simple premise. If the stock market is the economy, how does the stock market evaluate small business earnings growth when most small businesses are not publicly traded? It is a simple question, but I have yet to find a sell side analyst that can work around it with facts......Read More.



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Ignore Banks' Bearish Statements on Gold

By Jeff Clark, Senior Precious Metals Analyst

Goldman Sachs has lowered its gold price projections and says the metal is headed to $1,200. Credit Suisse and UBS are bearish. Citigroup says the gold bull market is over.

So I guess it's time to pack it in, right?

Not so fast. As we've written before, these types of analysts have been consistently wrong about gold throughout this bull cycle. Another reason to disagree, however, is history; we've seen this movie before. In the middle of one of the greatest gold bull markets in modern history, the one that culminated in the 1980 peak, gold experienced a 20 month, one way decline. Every time it seemed to stabilize, the bottom would fall out again. From December 30, 1974 to August 25, 1976, gold fell a whopping 47%.

1976 had to be a tough year for gold investors. The price had already been declining for a year – and it just kept on sinking. Since that's similar to what we're experiencing today, I wondered, What were the pundits were saying then? I wanted to find out.

I enlisted the help of two local librarians, along with my wife and son, to dig up some quotes from that year. It wasn't easy, because publications weren't in digital form yet, and electronic searches had limited success. But we did uncover some nuggets I thought you might find interesting.

The context for that year is that the IMF had three major gold auctions from June to September, dumping a lot of gold onto the market. Both the US and the Soviet Union were also selling gold at the time. It was no secret that the US was trying to remove gold from the monetary system; direct convertibility of the dollar to gold had ended on August 15, 1971.

The public statements below were all made in 1976. You'll see that they aren't all necessarily bearish, but I included a range to give a sense of what was happening at the time, especially regarding the mood of the gold market. I think you'll agree that much of this sounds awfully darn familiar. I couldn't resist making a few comments of my own, too.

To highlight the timing, I put the comments into a price chart, pinpointing when they were said relative to the market. Keep in mind as you read them that the gold price bottomed on August 25, and then began a three-and-a-half year, 721% climb…

[1] "For the moment at least, the party seems to be over." New York Times, March 26.

[2] "Though happily out of the precious metal, Mr. Heim is no more bullish on the present state of the stock market than any of the unreconstructed gold bugs he's had so much fun twitting of late. He's urging his clients to put their money into Treasury bills." New York Times, March 26.

Me: These comments remind me of those today who poke fun at gold investors. I wonder if Mr. Heim was still "twitting" a couple years later?

[3] "'It's a seller's market. No one is buying gold,' a dealer in Zurich said." New York Times, July 20.
Turns out this would've been an incredible buyer's market – but only for those with the courage to buy more when gold dropped still lower before taking off again.

[4] "Though the price recovered to $111 by week's end, that is still a dismal figure for gold bugs, who not long ago were forecasting prices of $300 or more." Time magazine, August 2.
The "gold bugs" were eventually right; gold hit $300 almost exactly three years later, a 170% rise.

[5] "Meanwhile, the economic conditions that triggered the gold boom of 1973 through 1974, have largely disappeared. The dollar is steady, world inflation rates have come down, and the general panic set off by the oil crisis has abated. All those trends reduce the distrust of paper money that moves many speculators to put their funds in gold." Time magazine, August 2.

This view ended up being shortsighted, as these conditions all reversed before the decade was over. Does this sound similar to pundits today claiming the reasons for buying gold have disappeared?

[6] "Our own predictions are that gold will go below $100, with some hesitation possible at the $100 level." As stated by Mr. Heim in the August 19 New York Times.

Yes, this is the same gentleman as #2 above. I wonder how many of his clients were still with him a few years later?

[7] "Currently, Mr. LaLoggia has this to say: 'There is simply nothing in the economic picture today to cause a rush into gold. The technical damage caused by the decline is enormous and it cannot be erased quickly. Avoid gold and gold stocks.'" New York Times, August 19.

You can see that these comments were made literally within days of the bottom! Take note, technical analysts.

[8] "'Gold was an inflation hedge in the early 1970s,' the Citibank letter says. 'But money is now a gold-price hedge.'" New York Times, August 29.

Wow, were they kidding?! This reminds me of those dimwits journalists who said in 2011 to not invest in gold because it isn't "backed by anything."

[9] "Private American purchases of gold, once this was legalized at the end of 1974, never materialized on a large scale. If the gold bugs have indeed been routed, special responsibilities fall on the victorious dollar." New York Times, August 29.

The USD's purchasing power has declined by 80% since this article declared the dollar "victorious."

[10] "Some experts, with good records in gold trading, declare it is still too early to buy bullion." New York Times, September 12.

Too bad; they could've cleaned up.

[11] "Wall Street's biggest brokerage houses, after having scorned gold investments during the bargain days of the late 1960s and early 1970s, made a great display of arriving late at the party." New York Times, September 12.

No comment necessary.

[12] "He believes the price of bullion is headed below $100 an ounce. 'Who wants to put money over there now?'" As stated by Lawrence Helm in the New York Times, September 12.

The price of gold had bottomed two weeks before, making the timing of this advice about the worst it could possibly be.

[13] Author Elliot Janeway, whose book jacket states, "Presidents listen to him," was asked by a book reviewer about his preferred investments. He writes: "Then, gold and silver? He likes neither. In fact he writes: 'Any argument against putting your trust in gold, and backing it up with money, goes double for silver: silver is fool's gold.'" New York Times, November 21.

Mr. Janeway ate his words big-time: from the date of his comments to silver's peak of $50 on January 21, 1980, silver rose 1,055%!

[14] "Mr. Holt admits that 'in 1974, intense speculation caused the gold price to get too far ahead of itself.'" New York Times, December 19.

So, anything sound familiar here? Yes, it was a brutal time for gold investors, but what's obvious is that those who looked only at the price and ignored the fundamentals ended up eating their words and dispensing horrible advice. Investors who followed the "wisdom of the day" missed out on one of the greatest opportunities for profit in their lifetimes.

I was pleased to learn, though, that not all comments were negative in 1976. In fact, in the middle of the "great selloff," there were those who remained stanchly bullish. These investors must've been viewed as outliers – they, much like some of us now, were the contrarians of the day.

Also from 1976…

• "Many gold issues, in fact, are down 40 percent or more from their highs. Investors who overstayed the market are apparently making their disenchantment known. The current issue of the Lowe Investment and Financial Letter says, 'We are showing losses on our gold mining share recommended list… but keep in mind that these shares are for the long-term as investments.'" New York Times, March 26.
  
  Sounds like what you might read in an issue of a Casey Research metals newsletter..

• "The time to buy gold shares," [James Dines] declares, "is when there is blood in the streets." New York Times, September 12.
  
  If you glance at the chart above, Jim's comments were made within two weeks of the absolute low.

• "We're recommending to clients that they hold gold and gold shares," [C. Austin Barker, consulting economist] says. "The low-production-cost mines in South Africa might be interesting to buy for the longer term because I see further inflation ahead." New York Times, September 12.
  
  Investors who listened to Mr. Barker ended up seeing massive gains in their gold and gold equity holdings.

• "The probability of runaway inflation by 1980 is 50%... In light of this, the only safe investments are gold, silver, and Swiss francs,'" said the late Harry Browne on November 21 in the New York Times.
   

• "In the longer run, [Jeffrey Nichols of Argus Research] believes gold's price trend 'is much more likely to be upward than downward.'" New York Times, December 19.
  
  The "longer run" won.

• "'I think the intermediate outlook for gold is a period of consolidation and a bit of dullness,' says Mr. Werden. 'However, six or nine months from now, we could see renewed interest in gold.'" New York Times, December 19.
  
  He was right; within nine months gold had risen 13.5%.

• "Mr. Holt offers some advice to investors who are taking tax losses on their South African gold shares – some of which are selling at just 30 to 35 percent of their peak prices in 1974. 'If leverage has worked against you on the way down,' he reasons, 'why not take advantage of it on the way up?'" New York Times, December 19.
  
  Solid advice for investors today, too.

• "What's his [Thomas J. Holt] prediction for the future price of gold? 'A new high, reaching above $200 an ounce, within the next couple years.'" New York Times, December 19.
  
  His prediction was conservative; gold reached $200 nineteen months later, by July 1978.

It's clear that there were positive "voices in the wilderness" during that big correction, and as we all know, those who listened profited mightily.

There were other interesting tidbits, too. For example, gold stocks had been performing so poorly for so long that some advisors suggested a strategy we also hear today…

• "It is probably too late to sell gold shares, the stock market's worst-acting group these days, except for one possible strategy: selling to take a tax loss and switching into a comparable gold security to retain a position in the group." New York Times, September 12.

Even back then, it was widely known that gold often bucks the trend of the broader markets…

• "You might put a small portion of your money into gold shares and pray like the dickens that you lose half of it. In that way, chances are that if gold shares go down, the rest of your stock portfolio will go up." New York Times, September 12.

Gold miners provided critical revenue and jobs, just like today. From the August 2 issue of Time magazine…

• "South Africa, the world's largest gold producer, is being hurt the most. The price drop will cost it at least $200 million in potential export earnings this year."

• "Layoffs at the gold mines would make it even worse – the joblessness could intensify South Africa's explosive racial unrest."

• The Soviet Union, the world's second-largest gold producer, is feeling the price drop, too. The Soviets depend on gold sales to get hard currency needed to buy US grain and other imports."

Gold was also used as collateral…

• "The international gold market was also roiled yesterday by a report by the Commodity News Service that Iran was negotiating to lend South Africa roughly $600 million, predicated on a collateral of 6.25 million ounces of gold."

And just like today, there were plenty of stupid misguided US politicians: From the New York Times on August 27:

• "The drop in gold bullion prices from $126, which was the average at the first IMF auction June 2, provoked the Swiss National Bank to attack Washington's attitude toward the metal as 'childish.' Aside from the estimated $4.8 billion of gold reserves held by Switzerland, bankers there advocate some role for the metal as a form of discipline against unrestricted printing of paper money."

That last statement from the Swiss bankers is hauntingly just as true today.
Last, you know how the government in India has been tinkering with the precious-metals market in its country? And how it's led to smuggling? From the New York Times on August 27:

• "India announced it was resuming its ban on the export of silver. India is believed to have the largest silver hoard and the government there freed exports earlier this year as a means of earning taxes levied on overseas sales. However, most silver dealers minimized the significance of India's move yesterday. As one dealer explained, 'Smuggling silver out of India is so ingrained there that the ban will have no effect on the flow. It never has. Indian silver will continue to ebb and flow into the world market according to price.'"

So what's the difference in mood today vs. the mid-1970s? Nothing! This shows that the same concerns, fears, and confusion we have now existed at a similar point in the gold market then. There were also those who saw the big picture and stayed vigilant. Virtually every comment made in 1976 could apply to today. Keep in mind that most of the statements above are from two publications only; there are undoubtedly many more similar comments from that year.

The obvious lesson here is that patience won out in the end. It took the gold price three years and seven months to return to its December 1974 high. It only took another 18 months to soar to $850. Today, that would be the equivalent of gold falling until June this year, and not returning to its $1,921 high until April, 2015. It would also mean we climb to $6,227 and get there in November, 2016. Could you wait that long for a fourfold return?

This review of history gives us the confidence to know that our gold investments are on the right track. I hope you'll join me and everyone else at Casey Research in accepting this message from history and staying the course.

So, what will your kids or grandkids read in a few decades?

• "Buy gold. It's going a lot higher." Jeff Clark, Casey Research, March 24, 2013.

Gold is going higher, but gold producers are going to go higher still. Now, junior gold explorers… if you select the right ones, you'll experience life-changing gains. Identifying junior gold miners with the right stuff is how contrarian investing legends Doug Casey, Rick Rule, and Bill Bonner have made millions – and right now you have the opportunity to hear them reveal exactly how they did it, and how you can, too. It's all happening during the upcoming Downturn Millionaires web video event, which is free.

To learn more, click here.


The 2 Energy Sectors You Should Invest in This Year

The Collapse in the Junior Mining Stock Sector

To say the precious metals market is in turmoil would be an understatement. Gold has dropped 3% in the last year, while gold stocks have been completely decimated, even strong firms with outstanding projects are down 50% or more.

It's not surprising many investors are wondering if the bull market in precious metals is over… yet conditions like we're seeing now in the mining sector are exactly what contrarian investors look for.

To help clarify today's investing environment in precious metals stocks for you, Casey Research called together a panel of experts in mining and natural resources for an urgent summit: Downturn Millionaires.

We videotaped this event on location (at La Estancia de Cafayate in Argentina, with video feeds to panelists in the junior resource capital of Vancouver) and will air it on the Internet at 2 p.m. Eastern time on April 8.

This event is free to the public. All you have to do is register....Just click here.

Among the topics covered in depth:

* Does the bull market in gold and silver still have legs?

* What investors with positions in junior resource stocks can do today to reduce losses and reposition their portfolios.

* Is the gold stock sector doomed, or has the disconnect between the price action of the juniors in the face of rampant central bank money printing created a once in a generation contrarian opportunity to profit?

* A critical, extremely timely overview of the state of the global economy.

Here's the "Downturn Millionaires" all star guest line up and registration form to sign up now for the Downturn Millionaires webcast.


The 2 Energy Sectors You Should Invest in This Year

Say Goodbye to Yellow Gold and Hello to Black Gold

The gold market continues to frustrate the bulls and confound conventional wisdom. The market action yesterday and early today can only be seen as negative. With both our weekly and monthly Trade Triangles red, we see no reason to get excited about gold moving higher at the moment, so for now say goodbye to yellow gold.

On the other side of the ledger, say hello to black gold. Yesterday our weekly green Trade Triangle kicked in and gave a buy signal in the crude oil market. Yesterday's buy signal was in line with the longer term monthly Trade Triangle, which has been bullish and in place for quite some time. We see the renewed bull market in crude oil continuing from here based on our Trade Triangle technology. With gasoline and crude oil prices moving higher, it does raise concerns about gas prices. If gas prices become so expensive, is that going to derail the economy?

The 2 Energy Sectors You Should Invest in This Year

The 2 Energy Sectors You Should Invest in This Year

Top energy analyst Marin Katusa, frequently featured in the financial media such as Forbes, Business News, Financial Sense News Hour, and the Al Korelin Show, says two highly undervalued energy sectors will provide windfalls for smart investors this year.

Read his assessment, including which two energy sectors you should be bullish on for 2013....and which two you'd only lose money on. Click here for Marin's free report, The 2013 Energy Forecast.


Read "Fortune Favors the Bold Energy Investor"

What Does 8% Inflation Really Mean?

From Dennis Miller at Casey Research......

 

Eight percent is not good news. In my latest article I shared some reader feedback from our inflation survey, and in case you missed it, the Money Forever Reader Poll Inflation Rate is 8%. But what does that number really mean for us – seniors and savers trying to protect our buying power? It's time to read the tea leaves and find out.

 

Up to Your Ass in Alligators

You may remember the old poster that read, "When you are up to your ass in alligators, it's tough to remember the goal was to drain the swamp." You may have felt overwhelmed during the last few years, as the investment options for your retirement portfolio changed. You might read about the benefits of gold and silver one day, then CDs, dividend-paying stocks, and annuities the next. It's pretty easy to feel overwhelmed, particularly when you cannot afford to put too much of your life savings at risk.



One of our readers really drove home the challenges we all face:

"Anyone who has been living on SS [Social Security] checks since 2000 will tell you the same thing. They cannot live on those checks alone, and [have] depended on the interest they receive from their savings accounts or CDs. They cannot do this any longer. They now need to withdraw principal or redeem some CDs just to make ends meet. … [We are] on fixed incomes with no hope of getting a raise. These people understand the effects of inflation more than any other group. These people live with fear every day, understanding they have little control over their financial future, while watching their life savings slowly vanish every year."

Of the readers who responded to our poll, 1.6% think the inflation rate is 2% or less. On the flip side, the remaining 98.4% must think the government is lying (or in need of a new statistician).
My dear friend Toots, whom I often quote, wrote, "Did we prove once again the world is not flat?" Perhaps, but there's more to it. Certainly, I've made that point before, but that doesn't negate the need to highlight these phony government numbers. We shouldn't accept falsehoods with a nod and a wink; that's how they become immutable "facts" of life in many people's minds.

Some folks want to debate the methodology used by Shadow Government Statistics, but that misses the point. The bottom line is: 98.4% of us agree that the real inflation rate is higher than the rate reported by the BLS. That is the reality of our readers – at the grocery store, the gas pump, and today at the flower shop (gentlemen, don't forget roses for your sweetheart). Anyone living on a fixed income already knows this.
The real issue is that we are getting squeezed! At least, 98.4% of us think so. There's no need to dwell on whether it's 6%, 7% or 8%, etc. What really matters is how this affects your life. If the price of my favorite snack doubled, and the price of broccoli dropped 50%, my costs are rising. The price of broccoli could drop 99%, and I still wouldn't buy it.

While planning for retirement, most of us planned for a 2% inflation rate and anticipated earning 6% on our portfolio. That was a nice retirement plan while it lasted, but it won't do much good for anyone now.
Another old-line "rule" was: a retiree could safely use 4% of his portfolio every year to supplement Social Security, and still be fine for the rest of his life. Where did the math come from? If your portfolio grew 6% every year and you took out 4%, the remaining 2% covered any loss to inflation. It was really that simple, and it worked just fine for me in my early retirement years.

We have all heard the old rule, "Live off the interest and never touch the principal." That is exactly what we were doing, while also protecting that principal from inflation.

Now comes the scary part. If the real rate of inflation is anywhere near the Money Forever Reader Poll Inflation Rate of 8%, how much can we take out of our portfolio every year without losing buying power? The math is still simple, but with a frightening answer: nothing, unless you earn more than 8%.

The problem is easy to understand, but the solution is tough to implement. If we want that same 4% to supplement our Social Security checks, we need to earn 12% on our portfolio every year – 8% for inflation and 4% for income. And this does not even factor in taxes. Those of us with a traditional IRA who are over 70 1/2 years old are required to take a minimum distribution, which can come with a nice tax bill.

Imagine that you have a $1 million portfolio, and your goal is to keep up with the Money Forever Reader Poll Inflation Rate and earn 4% income to supplement your Social Security checks. That's $120,000. To maintain a somewhat conservative posture, we recommend 30-33% of your portfolio be in cash, which pays little if any interest; let's assume cash pays 0% for the moment. That means you must earn 17.1% on the remaining $700,000 to reach your goal of $120,000.

That return can come in the form of an income check, dividends, and stock appreciation. Whatever the source, that's a pretty tall order. And it's particularly daunting when you consider that anyone close to retirement age should make minimal high-risk investments. We can't bet it all on a speculative stock, hoping to catch the next Internet startup success story.

Finding the Strength to Strangle the Nemean Lion

The Money Forever team is on the lookout for solid companies that not only pay dividends, but also have a history of regular dividend increases. In the last quarter, three of the stocks in the Money Forever portfolio increased their dividends. It is highly unlikely that most of us will live long enough to see our dividends equal 50% of our investment (which is what Warren Buffett receives from Coca-Cola, according to what I've read). However, if a company is currently paying 4%, it won't take too long to see an 8% yield. Once our dividend yield is at or above the inflation rate, we can factor in appreciation and start gaining ground on the inflation monster once again.

While dividend-paying stocks will get us on the right track, there's still more work ahead. Dividends alone are not enough; we also need stock appreciation. If you subscribe to our premium publications, it may be a good time to review our special report, Money Every Month, where we discuss this in great detail. As of today, over half of the stocks in our portfolio have double-digit gains. While we are proud of what we have accomplished to date, we also understand that the current market could change any minute. We have to remain vigilant. Stocks with a long history of increasing their dividends plus a good history of appreciation are hot tickets. Perhaps this is part of the reason why the stock market is doing so well in a tough economy.

Alternative sources of income can also help. Two of our recent Money Forever premium issues focused on annuities and reverse mortgages. Under the right circumstances, as we outline in our reports, these can be valuable alternatives for filling your cash-flow gap. Nevertheless, please consider all of the risks and cautionary tales included in our reports before purchasing an annuity or signing a reverse mortgage. One seemingly simple mistake – like neglecting to put your spouse on a reverse mortgage – can be devastating.

So can it be done? Can we really build a portfolio that will stand up against the current rate of inflation? Sure; but we have to stay on top of our investments and continue to educate ourselves. "Set it and forget it" won't work.

From the Stadium to the Golf Course

For many of us, cutting back on expenses is very difficult. It can feel like part of our retirement dream is going up in smoke. We have friends who planned to take summer and winter cruises every year after they retired. They thought they had the money to do it, but now they have to cut back. They do not enjoy their driving trip to the local state park nearly as much as they do a cruise.

One of the respondents to our survey mentioned that he cut back on golf from three days to two days a week. Our good friend Phil addressed his golf situation in a unique manner. For several years he had volunteered during spring training for a major league baseball team. Then the local golf course advertised for part-time help. He inquired; the job sounded like fun, and he negotiated complimentary greens fees as part of his package. For him it is the best of both worlds. Now he has a little extra income, his golf expenses are radically reduced, and he still is able to golf regularly, something he really enjoys. And yes, the baseball team is going to have to recruit another free laborer. Somehow, I think they'll manage!

I'm realizing we all have to come to grips with the reality described by our reader at the beginning of today's article. While it may be difficult for all of us, we are old enough to know that putting things off only makes problems get worse faster. It's like our own personal fiscal cliff, but we can't keep running the printing press and ignoring the real problem.

My oldest daughter, also a baby boomer, went to a class on personal financial management about ten years ago. I asked her what she thought the biggest lesson was. Her response surprised me:

"The first thing to deal with is your expectations. If you want a lot of stuff, and currently do not have the income to pay for it, you must find ways to increase your income. If that is not possible, then you must learn to adjust your lifestyle and be happy with what you have, living within your means. Dad, they stressed that part of being truly happy is the realization that your neighbor may have more or less than you do and it makes no difference. Personal financial management is as much an adjustment of your attitude as it is an adjustment of your spending habits."

In retrospect, that class had a major effect on her life. She is a grandmother now, and she and her husband have a truly happy family. I believe it was philosopher William James who said, "Human beings can alter their lives by altering their attitudes." That sentiment certainly rings true.

OK, you get the point, but you may not like it. Neither do I, and neither do the millions of our peers in the same predicament. So what should we do? To start with, everything I just mentioned, which is quite a task. Become an active investor, learn, and adjust to the new market. We must protect our nest eggs and look for solid income opportunities. We must look at our spending habits and see where we can cut back. Every dollar we save takes a little pressure off our portfolio and the need for it to produce income.

Also, don't discount finding other sources of income. Write the book you've been dreaming about – turn your hobbies into a profit. I have a buddy who worked in the auto industry. Dealers often sell a car they do not have in inventory if there is one at a nearby dealer they can trade for. He set up a business helping dealers move vehicles around. He loves it because he stays active, and he says he had to learn zero new skills. His comment was, "Where else can I get a part-time job where I get paid to drive around listening to a ball game?"

You, dear readers, drove home the point for me with your feedback to our survey. If we need 12% or so to protect our nest eggs, then we all have to accept that challenge. If we have a really good year, we can grow our nest eggs and increase our buying power. If we fall short, we must keep erosion to a minimum.

The last time I ran a retirement planning computer program, it said I would be fine as long as I passed away before age 125. In a bad year that may slip to 115. We are all in this together, and I'm committed to making sure Miller's Money Forever lives up to its name.

One final thought…

My overriding point is that we have to take control of our retirement finances. Like I said earlier, the days of "set it and forget it" are gone. The upside here is that we can actually secure our retirement. Together with thousands of subscribers we're doing just that. One way to start is with our free Money Every Month plan outlining how to invest so you’re getting income every month.  Click here to find out more about this plan.
 

The 2 Energy Sectors You Should Invest in This Year

Where is all the new Natural Gas Pipeline Construction?

U.S. natural gas pipeline capacity investment slowed in 2012 after several years of robust growth. Limited capacity additions were concentrated in the northeast United States, mainly focused on removing bottlenecks for fast growing Marcellus shale gas production. More than half of new pipeline projects that entered commercial service in 2012 were in the Northeast (see map below). Excluding gathering, storage, and distribution lines, project sponsors in the United States added 4.5 billion cubic feet per day of new pipeline capacity and 367 miles of pipe totaling $1.8 billion in capital expenditures in 2012.




Read the entire EIA article


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